ID 6228
Camps, Hernán: Livingstontravels.com
Hamburg: Diplomica GmbH, 2002
Zugl.: Frederiksberg, MBA-Arbeit / Master of Business Administration, 2001
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Livingstontravels.com
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NDEX
i
TABLE OF CONTENTS
SECTION 1: OVERVIEW... 1
1.
INTRODUCTION: WORLDWIDE INTERNET TRAVEL PORTAL ... 2
2.
PROBLEM FORMULATION... 3
3.
METHODOLOGY... 5
SECTION 2: INDUSTRY ANALYSIS ... 9
4.
DEFINITION OF THE INDUSTRY... 10
4.1
V
IRTUAL COMMUNITY
I
NDUSTRY VS
O
NLINE
T
RAVEL
I
NDUSTRY
... 10
4.2
W
HO IS THE
C
LIENT
?... 11
4.3
T
RAVELERS MOTIVATION AND NEEDS
... 11
4.4
T
HE HOLIDAY PROCESS
... 12
4.5
H
OW ARE THE NECESSITIES COVERED
O
NLINE
;
TRHOUGH WHICH FUNCTIONS AND
TECHNOLOGIES
... 13
5.
EXOGENOUS FORCES AFFECTING THE INDUSTRY ... 14
5.1
M
ACROECONOMICS
V
ARIABLES
... 14
5.1.1
Political 14
5.1.2
Economic Environment and its Relation to Consumption
14
5.1.3
Demographic Variables
16
5.2
E-C
USTOMER
P
REFERENCES
... 18
5.3
T
ECHNOLOGY
... 18
6.
ENDOGENOUS FORCES: PORTER'S FIVE FORCES DRIVING
INDUSTRY COMPETITION ... 21
6.1
T
HREAT OF ENTRY
... 21
6.2
P
RESSURE FROM SUBSTITUTE PRODUCTS
/P
OSSIBILITIES TO ENTER OTHER SEGMENTS OF
SERVICE
E
XPANDING THE CAKE
... 22
6.3
B
ARGAINING POWER OF BUYERS
... 23
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NDEX
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6.4
B
ARGAINING POWER OF SUPPLIERS
... 24
6.4.1
Carriers 24
6.4.2
Lodging 27
6.4.3
Car Rental Firms
27
6.4.4
Global Distribution Systems (GDS)
29
6.4.5
Food Services, Attractions & Entertainment, Resorts
33
6.5
I
NTENSITY OF RIVALRY AMONG EXISTING COMPETITORS
... 33
6.5.1
Description of Main Competitors and their Strategies vs. their Profitability
33
6.5.2
Travel Agencies
34
6.5.3
Wholesalers 35
6.5.4
Tour Operators
35
6.5.5
Specialty Intermediaries
36
6.5.6
Virtual Communities
36
6.5.7
Benchmark and Strategic Group Maps
37
7.
CONCLUSION--FORCES AFFECTING THE INDUSTRY ... 44
8.
TRENDS AND FUTURE SCENARIOS ... 48
8.1
U
SERS
B
ROADCAST
... 48
8.2
W
HO WILL PROBABLY MAKE THE
N
EXT
F
UTURE
C
HANGES AND
W
HICH
O
NES WILL
THOSE BE
... 51
8.2.1
The Future Role of Travel Agents
51
8.2.2
New Distribution Channels
52
8.3
F
UTURE
S
CENARIOS
... 53
9.
OPPORTUNITIES AND THREATS, WEAKNESSES AND STRENGTHS
OF WORLDWIDE INTERNET TRAVEL WITHIN THE INDUSTRY... 56
9.1
S
TRENGTHS
... 56
9.2
W
EAKNESSES
... 56
9.3
O
PPORTUNITIES
... 56
9.4
T
HREATS
... 58
SECTION 3: BUSINESS STRATEGY ... 59
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NDEX
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10.
CORPORATE STRATEGY ... 60
10.1
V
ISION OF THE
F
IRM
... 60
10.2
M
ISSION OF THE
F
IRM
... 60
10.3
O
BJECTIVES OF THE
F
IRM
... 60
10.4
S
TRATEGIC
P
OSITIONING
--G
ENERIC
C
OMPETITIVE
S
TRATEGY
... 61
10.5
C
OMPETITION VS
C
OOPERATION AND
N
ETWORKING
... 63
10.6
C
REATION OF
N
EW
A
SSETS FOR
F
UTURE
S
TRATEGIES
... 65
10.7
H
OW TO
E
RODE OR
I
MITATE
C
OMPETITORS
C
OMPETITIVE
A
DVANTAGES
... 65
10.8
P
OOL OF
F
UTURE
S
TRATEGIES
... 66
10.8.1
Informediary Strategy:
66
10.8.2
Bundling Strategy
68
10.8.3
Free Price Fluctuations--Auctions
69
11.
FUNCTIONAL STRATEGY... 70
11.1
M
ARKETING
S
TRATEGY
... 70
11.2
H
UMAN
R
ESOURCE
S
TRATEGY
... 72
11.3
F
INANCIAL
S
TRATEGY
... 72
12.
OPERATIVE STRATEGY... 73
12.1
S
ERVICE
A
NALYSIS
... 73
12.2
E
LECTION OF
T
ARGET
C
OUNTRIES
... 76
12.3
D
ISTRIBUTION
C
HANNEL
... 77
12.4
P
OTENTIAL
P
ARTNERS
... 78
SECTION 3: CORPORATE ARCHITECTURE ... 80
13.
CORPORATE ARCHITECTURE ... 81
13.1
V
ALUE
C
HAIN
A
NALYSIS
... 81
13.2
RBV OF THE FIRM ANALYSIS ... 82
13.2.1
Capabilities 82
13.2.2
Resources 83
13.2.3
Core Competencies
84
14.
TECHNOLOGICAL ARCHITECTURE... 85
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NDEX
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14.1
P
RESENTATION
M
ODULE
... 85
14.2
A
PPLICATION
M
ODULE
... 86
14.3
D
ATA
B
ASE
M
ODULE
... 86
14.4
P
AYMENT
S
YSTEM
... 86
SECTION 4: IMPLEMENTATION OF THE STRATEGY ... 87
15.
HOW, WHERE, WHEN AND HOW MUCH TO INVEST (A BUDGET). 88
16.
FINANCIAL ANALYSIS... 90
17.
CORPORATE STRUCTURE ... 93
APPENDIX I: THE HOLIDAY PROCESS ... 94
17.1.1
Planning 94
17.1.2
Purchasing 94
17.1.3
Pricing 94
17.1.4
Marketing 95
17.1.5
Providing 96
17.1.6
Support processes
96
APPENDIX II: IT TENDENCIES... 97
APPENDIX III: MAIN TRAVEL AGENCIES... 105
BIBLIOGRAPHY ... 119
Livingstontravels.com
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VERVIEW
1
SECTION 1: OVERVIEW
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VERVIEW
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1. I
NTRODUCTION
:
WORLDWIDE
I
NTERNET
T
RAVEL
P
ORTAL
The use of electronic and other mechanized methods to exchange business transactions
and other information through interconnected computers is not just a technological
change but also a fundamental shift in mindset and in the way of doing business today.
There are great new opportunities for the e-business, which have not yet been explored.
Technology supports while does not limit the amount of opportunities but allows a whole
new set of competitive advantages in a global scenario where some of the rules of the
game have change, even though, the most basic principles of business remain the same.
There is potential for acting globally with the support of the communications
technologies. Additionally, the reduction of regulatory barriers in most of the countries
stretches the limits of e-commerce around the world. However, there are still barriers
such as the paying mechanisms, currencies or the fiscal and legal issues.
Even though the amount of opportunities that technology provides to the market place is
surprising, there is no technology that can help with out a clear idea of the business
objectives to be achieved on the net.
Both tourism and Web based Electronic Commerce are growing and changing rapidly.
Two hundred and thirty percent increased in online holiday sales over 1997 (Glenn
Kapetansky, March 1999)
.
Travel is currently the most purchased product online having
surpassed computer equipment. In 1999 US$5 billion was spent at travel web sites.
Research indicates this figure will increase six times to US$30 billion in 2001
(Discovernz, 2000). Given these opportunities in the market place, this project will set the
tools to stimulate the creating process, to test the idea and to work out its implications.
Livingstontravels.com aims to be a niche player among the online travel agencies
focusing mainly on satisfying the needs of young travelers with an interest and respect
towards other cultures and resorts around the world. Therefore, Livingstontravels.com
will not only handle reservations but it will also offer some other bundled services which
will help to understand better the visited country and establish contact with the native
people through the web site virtual community before starting the trip.
Livingstontravels.com
O
VERVIEW
3
2. P
ROBLEM
F
ORMULATION
Since the beginning of the Internet as we know it today, tones of start-ups.com are going
on the net everyday. A few of those succeed while most of them never get the expected
visitors, cannot sell their products, or are not able to cover client expectations and create
a bundle with its customers.
The main purpose of this project is to establish the complete business plan for launching
an online travel agency on the Internet, which differentiates from the rest on a
sustainable base while value is being perceived and returns on investment are positive.
In order to launch an online travel agency on the net from scratch, the industry and its
tendencies will have to be understood. The Identification of the Key Success Factors and
the way to convert those into sustainable competitive advantages will be of relevance not
only in the terms of the industry itself but also on the Internet environment.
Therefore, a first sub-objective for this project will be to identify where are we at in the
industry and where Livingstontravels.com is heading for:
·
Analyzing the industry, the main players and the future trends, identifying the Key
Success Factors, which can be converted into sustainable competitive advantages.
Since it is intended to create an Internet company, it will be important to consider which
is the vision and mission of the company. Therefore, we will have to:
·
Constitute the Vision of the firm
·
Establish the Mission of the firm
Once the present situation is analyzed and understood and the Mission is established we
will count with the proper tools to:
·
Identify the opportunities and threats in the chosen scenario, which can create a
benefit for Livingstontravels.com and its shareholders.
·
Define the services that Livingstontravels.com offers and how to obtain a sustainable
profit.
With a Business Strategy defined the different resources will have to be aligned. For that
reason we will:
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·
Align the Business Strategy with the Information Technology Strategy
·
Align the Business Strategy with the Structure of the firm
After the most important issues of the company are identified, it will be important to:
·
Calculate the budget for the required investment
·
Decide how to finance the firm
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VERVIEW
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3. M
ETHODOLOGY
Despite the fluidity of the cyberspace business environment and the consequent difficulty
in forecasting what is going to happen, drawing up a skeleton business or marketing plan
is essential. It will give the framework within which to plan and monitor the progress.
However, even the best-intended and
most rational-seeming strategy can be
converted into disasters unless it is
thoroughly and interactively tested.
Therefore, this strategy here planned
will only be intended as a framework to
guide and provide consistency for future
decisions made incrementally.
As it is shown in Figure 1,the project
defines a business strategy by analyzing
the industry. After the strategy of the
firm is defined a corporate and technological architecture for Livingstontravels.com will
be established and later implemented. There will always be used a double loop learning
methodology. By that is meant that if at a later stage one of the previous assumptions or
decisions proofs to be incoherent or unfeasible a step backwards will be obligatory.
Michael E. Porter (2001) reiterate that: "Although some have argued that today's rapid
pace of technological change makes industry analysis less valuable, the opposite is true.
Analyzing the forces illuminates an industry's fundamental attractiveness, exposes the
underlying drivers of average industry profitability, and provides insight into how
profitability will evolve in the future. The five competitive forces still determine
profitability even if suppliers, channels, substitutes or competitors change."
Business Strategy
Corporate
Architecture
Implementation
Company
Environment
Industry Analysis
Figure 1
Thesis Work Flow
Agreeing with Porters perspective I have chosen his concept of structural analysis (1980)
as a framework for understanding the five fundamental forces of competition in an
industry. However, as I see it, an industry cannot be completely understood solely by
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VERVIEW
6
reference to the industry structure model. The role of the economy and a wider
conception of the social and economic relations of the sector are vital. Such a perspective
has considerable benefits in the exploration of competition. It is through these grids of
relations that it is possible to make sense of the environment.
When looking at the attractiveness of the
industry from an global perspective, it is
especially important to consider the
external forces since companies do not
only look at the profitability of the
industry itself but also at the
attractiveness of the industry compared
with the same industry in other regions.
Therefore, the analysis will be
approached, as shown in Figure 2,
combining exogenous forces acting on
the travel industry (such as technology or environmental regulations) with the Porter's
five endogenous forces.
INDUSTRY
COMPETITORS
Rivalry Among
Existing Firms
POTENTIAL
ENTRANTS
SUBSTITUTES
BUYERS
SUPPLIERS
Cu
sto
me
r
Pre
fer
enc
es
Mac
roec
onom
ics
Tec
hno
log
y
Regula
tions
INDUSTRY
COMPETITORS
Rivalry Among
Existing Firms
POTENTIAL
ENTRANTS
SUBSTITUTES
BUYERS
SUPPLIERS
Cu
sto
me
r
Pre
fer
enc
es
Mac
roec
onom
ics
Tec
hno
log
y
Regula
tions
Figure 2
Forces Affecting the Industry
Source: The McKinsey Quarterly
Once the environment surrounding online travel agencies is understood,
Livingstontravels.com strengths and weaknesses are analyzed and opportunities and
threats identified using the SWOT analysis.
Up to this point, I have not used a traditional strategy methodology, which tends to
emphasize a single focused line of attack--a clear statement of where, how and when to
compete but more of a pool of strategies.
As Eric D. Beinhocker (1997) would confirm in his paper "Strategy at the Edge of
Chaos". In a complex adaptive system, a focused strategy to dominate a niche is
necessary for day-to-day survival but not sufficient in the long run. Given an uncertain
environment, strategies must also be robust--that is, capable of performing well in a
variety of possible future environments. Therefore, I have specified an analytical section
of the different trends affecting Livingstontravels.com industry in order to establish an
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VERVIEW
7
approximation of some possible future scenarios. By knowing those scenarios,
Livingstontravels.com can focus not only on how to be a good competitor (the classical
perspective) but also on how to be a good evolver able to innovate ahead of the market or
to adapt with it. A long-term superior performance will not be achieved through a
sustainable competitive advantage but by continuously developing and adapting new
sources of temporary advantage and thus being the fastest runner in the race.
On the other hand, the pool of strategies should merge into one strategy involving
continuity of direction. Defining a distinctive value proposition that it will stand for, even
if that means forgoing certain opportunities. Without this continuity of direction, it is
difficult for companies to develop unique skills and assets or build strong reputations
with customers. As Michael Porter (1996) mentions "frequent corporate reinvention is
usually a sign of poor strategic thinking and a route to mediocrity. Continuous
improvement is a necessity, but it must always be guided by a strategic direction."
Among the different scenarios, one of them will be chosen as the most possible, however,
at the edge of chaos, nothing is predictable and therefore a rich pool of possible strategies
is a must to develop responses when the environment changes.
To examine Livingstontravels.com internally and define its necessary resources and core
capabilities the very most recent point of view from the resource based-view of the firm
from Dave Ulrich (1999) is employed.
The results-based leadership point of
view will align the previously defined
strategy with the resources of the firm as
well as with the Information Technology
resources as shown in Figure 3 focusing
mainly on results, results and results.
Some of the management schools of
thought (Mintzberg, H. 1990) would
complaint that the structured of the firm
has been studied after defining the strategy of the firm since the structure is housing the
Leverage Business
Fit Resources
Business
IT and
other Resources
Leverage Business
Fit Resources
Business
IT and
other Resources
Figure 3
Framework for Business and IT Strategy
Source: DMR StrategyForum
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VERVIEW
8
capabilities of the firm and therefore should play a major role in determining the strategy
too. In effect, strategy and structure both support the organization. None takes
precedence; each always precedes the other and follows it. However, in the case of
Livingstontravels.com strategy and structure are moving together since the whole
organization is been created and jumping into a new position.
One of the main goals, when referring to the methodology has been to make the business
plan as short and clear as possible in order to make easy the comprehension, smooth the
progress of the structure and therefore facilitate the decision making instead of confusing
the reader with large discussions and over information. Therefore, Appendixes play in
this thesis a very important role as well when some of this areas want to be further
analyzed.
In this project, I have chosen to use, as a research method, a deductive methodology,
meaning that I have first chosen the theoretical framework, which could help me to reach
the goals established in the problem formulation, and afterwards I have related the
empirical research to the theory. However, the process was always dynamic, since,
sometimes, I came back to the methodology and made some changes as I learned more
about the industry and the framework limitations that the model could not overcome.
The information in the project is based on secondary research such as articles, previous
analysis, statistics, Internet and databases.
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NALYSIS
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SECTION 2: INDUSTRY ANALYSIS
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NALYSIS
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4. D
EFINITION OF THE INDUSTRY
4.1 V
IRTUAL COMMUNITY
I
NDUSTRY VS
O
NLINE
T
RAVEL
I
NDUSTRY
For any company, and in particular those offering their services based on the Internet,
there is always a dilemma when identifying the industry in which the company is
competing specially as the company moves from a simple Web site towards a full e-
commerce business.
The main reason for outlining in which industry the company is competing is because
very often and in this case above all, this company is competing in the crossroad from
two industries and using two different business models as well.
Once we know that the travel industry can be defined as "the composite of organizations,
both public and private, that are involved in the development, production, and marketing
of products and services to serve the needs of travelers" (Chuck, G., 1997) we could
assume that Livingstontravels.com competes in the travel industry since the majority of
its income should come from commissions on sales paid by travel providers.
However, since all of its business will be accomplished electronically, through the World
Wide Web, it will also be competing for traffic with all the other services traded via the
Internet. It will compete specially with other virtual communities since
Livingstontravels.com in order to create customer loyalty pretends to add value to its
services through its members, who add their information onto a basic environment
provided by Livingstontravels.com.
Even though, Livingstontravels.com is also competing with all the virtual communities
and therefore to some extent those competitors also need to be taken into account the
industry remains the same and the travel industry has just been reconfigured with lower
communication costs, gathering information's or accomplishing transactions. The
Internet has changed some of the market rules but did not create the industry. Similarly,
the Internet provides an efficient means to order products, but catalog retailers with toll-
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NALYSIS
11
free numbers and automated fulfillment centers have been around for decades. The
internet only changes the front end of the process (Michael E. Porter, 2001).
4.2
W
HO IS THE
C
LIENT
?
In order to identify which is the target client, it is important to understand which are the
different groups of visitors
1
.
It is important to define the types of visitors for establishing, at a later stage, the strategy
of Livingstontravels.com and identifying the target market where the company best suits
in proportion to its resources.
According to the OECD Tourism Committee there are many different types of visitors,
which can be classified in to distinct classes of traveler:
Tourists: Temporary visitors staying at least 24 hours in the country visited and the
purpose of whose journey can be classified as:
·
Leisure;
·
Business;
·
Family;
·
Mission; or
·
Meeting.
Excursionists: Temporary visitors staying less than 24 hours in the destination visited
and not making an overnight stay including travelers on cruises.
4.3 T
RAVELERS MOTIVATION AND NEEDS
Some of the key psychological factors that motivate people to participate in pleasure
travel include:
1
Visitor is any person who travels to a country other than that in which s/he has his/her usual residence but
outside his/her usual environment for a period not exceeding twelve months and whose main purpose of
visit is other than the exercise of an activity remunerated from within the country visited (OECD Tourism
Committee).
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NALYSIS
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·
Cultural experience
·
Leisure/escape
·
Personal Values
·
Social Contact
·
Social Trends (Chuck, G., 1997)
However, as we can see, even though it might be at a lower scale, all this factors can also
be fulfilled, to some extent, while navigating in some types of virtual communities and
are certainly a good introduction for planning a trip and leveraging the motivation factors.
Therefore, we could assume that the motivation factors for traveling and for navigating in
a travel virtual community are similar to a certain extent. A virtual community can be the
precedent of a real travel for some people while for some other people who does not have
the time, the willingness or the money it can be a substitute as well.
4.4 T
HE HOLIDAY PROCESS
There are five main elements in operating conventional package holidays (Alt, R):
·
Planning - the tour operator determines the overall capacity and mix of the holiday
programme;
·
Purchasing - contracting of accommodation and flight capacity;
·
Pricing - each individual holiday needs to be costed and priced;
·
Marketing - the holidays need to be marketed and sold. Brochure production will
come under this wing;
·
Providing - the delivery of holidays booked by customers.
A further explanation of each of the different phases of the process is explained in
Appendix I (Appendix I: The Holiday Process)
It is not easy to put all of the pieces of this chain together and is even less easy to keep
them working together in harmony. This is one reason why the main operators tend to
integrate vertically.
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4.5 H
OW ARE THE NECESSITIES COVERED
O
NLINE
;
TRHOUGH WHICH FUNCTIONS AND
TECHNOLOGIES
There is a large difference in the manner that necessities are been covered in the online
travel agencies as in the virtual communities. As we can see in Figure 4, online travel
agencies, at present, tend to essentially offer an electronic version of a traditional way of
doing business while virtual communities have a higher degree of innovation by offering
functions that did not exist before.
The same thing happens with the
integration of functions. While the
virtual communities are almost fully
integrated over the Internet, some travel
agencies may just provide marketing
functions over the Internet and some
others use the internet only for the
marketing and providing while do the
planning, purchasing and pricing and all
the support activities off line.
Online Travel
Agents
Virtual
Communities
Travel Agents,
hotels
Lower
Degree of Innovation
Higher
Multiple
Functions/
Integrated
Functional
Integrated
Single
Function
Figure 4
Classification of Internet Business Models
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5. E
XOGENOUS
F
ORCES AFFECTING THE INDUSTRY
5.1 M
ACROECONOMICS
V
ARIABLES
5.1.1 Political
·
Industrial action by port or air traffic control staff, pilots, etc. can prevent holidays
from happening, industrial action by less skilled staff such as hotel staff can affect
quality due to short staffing or untrained replacements
·
Terrorist threats and wars reduce demand, e.g. Egypt or Yugoslavia
·
Hostage-taking and other terrorism in Africa and Middle East damage the tourist
industry in those regions
·
Political instability in various Pacific rim countries
·
Abolition of duty free sales within the European Union will lead to increased ticket
prices and port / airport charges
+ +
Political Issues can block tourism or travelers and therefore affect negatively the
travel industry. Since the amount of countries on war, terrorism conflicts or closed
barriers is nowadays very low, this force does not affect strongly the industry.
5.1.2 Economic Environment and its Relation to Consumption
Livingstontravels.com will face a large number of economic environments do to its
global presence through the World Wide Web. The domestic economic environment
affects the expenditure patterns of the potential clients while the variety of different
international economic environments in which tourism is located affect the supply of the
tourism package.
The key factors in the economic environment that affect tourism organizations are:
·
Economic growth
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15
·
Income level
·
Investment expenditure
·
Government expenditure
·
Interest rates
·
Taxation
·
Inflation
·
Unemployment
Therefore, Livingstontravels.com will
have to follow the following pattern
shown in Figure 5 in order to decide
which are the clients to market its services and which are the preferred destinations at that
moment.
Disposable Expenditure in Tourism Generating Countries
Exchange rates
Relative Prices in
Destinations
Cost
Countries with patterns for a high traveling expenditure:
High economic growth
High expenditure in general and specially in traveling
Highly valued currency
Low inflation
Low unemployment rates
Inflexible reasons in relation
to the economic
environment
Attractive Destinations
Figure 5
Economic patterns for travel consumption
Countries with patterns for a high traveling expenditure in Europe:
0
5 0 0
1 0 0 0
1 5 0 0
2 0 0 0
2 5 0 0
1 9 9 5
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
G e r m a n y
F r a n c e
U K
I ta l y
S p a i n
S w e d e n
Figure 6
GDP by Country 1995 - 1996
Source: Euromonitor from National Statistics
N e th e r l a n d s
D e n m a r k
B e l g i u m
In the Graph is shown that Germany, France, the United Kingdom and Italy are the
countries with higher GDP. However, the Netherlands, Spain and Sweden had the highest
growth rates.
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0,0
1,0
2,0
3,0
4,0
5,0
6,0
1995
1996
1997
1998
1999
France
UK
Italy
Sweden
Germany
Spain
Figure 7
Inflation by Country 1995 - 1996
Source: Euromonitor from National Statistics
Netherlands
Denmark
Belgium
All the countries in Europe have been decreasing its inflation rates do probably to the
European Monetary Union. The most outstanding examples are Spain, Italy and Sweden.
Those changes will most surely increase the amount of tourist from those countries.
-
The Economic environment affects the travel industry. Only the most advanced
countries with a high GDP and low unemployment rates have high rates of
traveling.
5.1.3 Demographic Variables
Some of the demographic variables that will have to be carefully thought about when
considering which will be the most attractive countries to search for potential customers
where there is less rivalry in the industry in reference to this force will be:
·
Population growth
·
Age structure
·
Leisure time
·
Income distribution
·
Environmentalism
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·
Consumerism
·
Lifestyles
·
Attitudes
·
Values
For example, there has been a change in the age structure during the last decades do to
the maturity of the "baby boomers" that has created a consumer group which is an
important travel market with aspirations and lifestyle characteristics different from
previous generations. The over-50 age market is also a very important consumer group
for pleasure travel.
Other social factors are also changing the industry such as:
·
Taste and preference changes e.g. Pacific vs. Atlantic vs. Mediterranean destinations
·
Increasing personal travel
·
Better informed consumers making more sophisticated decisions
·
Customers are becoming fitter and more adventurous: product mix has to address this
attitude towards quality of life and lifestyle choices
The consumer expenditure on leisure by country it is highly correlated to the GDP.
However, if we look at the percentage of growth in the consumer expenditure on leisure
(see Figure 8), we will notice that those countries decreasing its inflation rates are
increasing its expenditure as stated before. Being Spain, Sweden, the Netherlands and
Italy the countries with the higher growth for consumer expenditure on leisure during the
last years.
+
Demographic variables affect the industry strongly. However, changes occur very
slowly being therefore a force to take into account when long term planning
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0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
1996
1997
1998
1999
France
UK
Italy
Sweden
Germany
Spain
Figure 8
Consumer Expenditure on Leisure by Country 1995 - 1996
Source: Euromonitor from National Statistics
Netherlands
Denmark
Belgium
5.2 E-C
USTOMER
P
REFERENCES
Customers are becoming more and more used to have personalized products responding
to their preferences. Therefore, the marketing One-to-One is becoming an essential
preference for e-customers.
A World Tourism Organization (WTO) report says that people who expect global
communication and access to instant information also have the same demands for tourism
and travel data, and that they will soon want to obtain this information from their own
living room and even their mobile phone (Chinahouston, 2000).
-
Customer's expectations are increasing rapidly forcing travel agencies to offer
more complete services, being on the edge of technology and offering competitive
prices
5.3 T
ECHNOLOGY
The World Wide Web coupled with business process re-Engineering (BPR) have the
potential to radically change the nature of the travel agents' business by providing online
booking for customers twenty four hours a day, information and graphics on demand, an
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the facility for agents to access a wider variety of information sources and bargains
(Standing, C., 1998).
Today technology is providing tools for management and marketing that enhance the
capabilities of organizations. Computers are now faster and more reliable allowing for
quicker results at a lower cost. Marketing managers have been taking advantage of data
warehousing via information technology (IT), which has allowed them to target specific
market segments and develop competitive marketing strategies. Perhaps networking is
one of the most significant parts of the Information Technology era. The Internet,
Intranets and Extranets have enabled employees, units, organizations, external partners
and customers to share an endless amount of information. This has allowed for significant
cost savings due to the sharing of information on a worldwide basis. Further, IT has
facilitated the relationship building process due to the vast amount of information that
can be transferred through the Internet in a matter of no time.
Software, hardware, information management, and telecommunications systems have
allowed for the processing and flow of information among organizations in the travel
industry. Many sources claim that the way in which tourism organizations take advantage
of IT tools will determine their future success in the marketplace (Drickhamer, D., 2000).
The tourism industry must consider the importance of the IT trend by implementing an
effective IT system for marketing, distribution, promotion and co-ordination of the
industry as a whole. It is crucial that tourism enterprises take advantage of the emerging
technologies in order to improve management abilities and develop sound business plans
focusing on the most efficient means of delivering value added products/services to
customers. In this respect, tourism organizations will be able to maintain a competitive
advantage over those who are not technologically advanced.
The increase in travelers over the years has prompted a demand for top quality IT with an
emphasis on "servicing" the customer by offering high quality products at low costs. The
success of the tourism industry will depend upon the abilities to recognize and respond
quickly to current and prospective customer needs. IT is beginning to play a major role in
"servicing" customers. IT has been a significant challenge for tourism organizations
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because it requires efficiency in internal and external communications. The initial cost of
IT will be quite high in a financial sense, and the tremendous cost savings in the long-
term will depend upon the efficiency of the IT during its crucial implementation stages.
Consequently, customers feel empowered by IT while at the same time are distancing
suppliers. The customer enjoys having the power to identify products of preference at the
right price, place, and time frame. It is important that service providers understand
customer needs in building relationships and developing the best products at the lowest
prices. The online companies that provide a full packaged travel experience at a low price
will be successful in the long-term (Katz, A. 2000).
--
Travel agencies have lost potential growth rates towards online travel agencies
due to the slow IT implementation while online travel agencies have been unreliable
because of subsidizing the purchase of their products and services in hopes of
staking out a position on the Internet and attracting a base of customers.
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6. E
NDOGENOUS FORCES
: P
ORTER
'
S FIVE FORCES DRIVING INDUSTRY COMPETITION
Before analyzing the endogenous forces affecting the travel industry it would be
important to understand how this industry is structured through its different distribution
systems. Figure 9 shows these systems as one-, two-, three-, or four-stage system.
Suppliers
Carriers
Lodging
Food Services
Car Rental Firms
Attractions &
Entertainment
Cruise Line
Resorts
Competitors
Travel Agent, Tour Operator,
or Specialty Channeler
Wholesaler, Tour Operator,
or Specialty Channeler
Wholesaler or
Tour Operator
Travel Agent
Specialty
Channeler
Travel Agent
Buyers
Individual
or
Group Traveler
Figure 9
Travel Industry Distribution System
Source: Chuck, G.
6.1 T
HREAT OF ENTRY
For those wanting to establish an online travel agency, going electronic is not cheap, but
it is a necessary investment, according to figures with the travel and tourism industry
(discovernz, 2000). There are signs, however of resistance to these changes. The main
barriers are perceived to be security of trading and internal considerations such as the
need to change business processes or not having staff with the necessary IT skills.
However, only a minority thinks these are likely to significantly delay their company
using e-commerce. Comparatively few think that their services are unsuitable for sale on
the Internet or that there is a lack of demand for electronic trading in their industry
(KPMG, 1999).
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Branding is not an important entry barrier on the Internet since consumers are more
concern about the product. Therefore, large investments in technology to access the
distribution channel are necessary and consequently expand demand in order to achieve
economies of scale.
Access to the suppliers is not difficult since they don't have exclusive contracts with
certain travel agents. However, it can be a large effort to establish contact with the
medium-sized tourism enterprises (SMTEs) due to the large amount of them and their
lack behind in technology which unable electronic mechanisms to establish business
relationships.
As players in the industry seek both upward and downward integration they often enter
new parts of the market, e.g. air, sea and rail companies offer package holidays and travel
agency services to encourage travel with them.
--
Threat of entry is high and attractive, especially from players in other areas of the
value chain such as airlines or cruise lines that want to offer a more seamless
service. Virtual communities or search engines can also easily sell travel services
online
6.2 P
RESSURE FROM SUBSTITUTE PRODUCTS
/P
OSSIBILITIES TO ENTER OTHER
SEGMENTS OF SERVICE
E
XPANDING THE CAKE
Considering that, as it was previously stated in section 4.2, the factors that motivate
people to participate in the pleasure travel are the cultural experience, leisure, personal
values, social contact and social trends those needs could be satisfied through many other
experiences. The same experiences could also be fulfilled in the hometown when visiting
a domestic museum or establishing contact with socially different people.
In relation to the virtual communities there are plenty of substitute products where users
can decide which ones to use such as communities for book readers like amazon.com.
Taste and fashion changes can expose narrow destination focused companies.
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- , 2001, Livingstontravels.com, Hamburg, Bedey Media GmbH, https://www.diplom.de/document/221677
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